Finance your vacation

11 February 2019

When you’re ready to head out on vacation, use these tips to help make your trip more affordable.

In today’s fast-paced world, vacations are practically a necessity, but that doesn’t make them any more affordable. When you’re ready to relax on an exotic beach or hike a distant mountain, your finances don’t have to hold you back.

There are numerous lenders across Canada that offer personal loans designed to pay for vacations. But be careful — you might be better off saving for your next big adventure rather than taking out a loan and paying more in the form of fees and interest.

What is vacation financing?

Vacation financing is generally the combination of your savings, a loan and a credit card. If you don’t have the savings built up and don’t want to spend a lot of money using a credit card, then a personal loan will likely be a good option to book your next trip. Depending on the type of trip you book, you may only have to pay a deposit at first. This will give you more time to come up with the rest of the money.

The type of vacation financing you’ll qualify for will depend on your credit score, your income and the amount you need to borrow.

How can I finance my vacation?

There are a few different financing options you can consider:

Personal loans can be used for almost any purpose, including vacations, and they’re many people’s go-to choice when it comes to vacation financing. If you have good or excellent credit, you can apply for a personal loan through a bank, credit union, online lender or lender who has physical branches close to you.

You’ll likely be able to borrow anywhere between $1,000 to $35,000 with interest rates much lower than those offered by standard credit cards. Since they’re unsecured, you won’t need to put up any collateral when you borrow.

Lines of credit usually provide you with a lower interest rate than most credit cards, but rather than receive a lump sum in your bank account, you can withdraw money at any time up to your limit. This means you only pay interest on what you actually borrow.

This gives you the flexibility to spend what you need when you’re on vacation without worrying about running out of funds. Once you pay your borrowed amount back, you can borrow the money again and again until you choose to close your line of credit.

Also known as a second mortgage, your home equity is used as collateral to secure your loan. They’re typically easier to qualify for since providing collateral makes you a less risky borrower, and can come with more competitive rates than unsecured personal loans. However, you run the risk of losing your house if you can’t pay your loan back.

Credit cards can be useful for booking flights, hotel rooms or paying for expensive dinners or souvenirs while you’re travelling. If you plan ahead, you can invest in a travel rewards credit card that might give you access to airport lounges, complimentary insurance coverage and travel rewards points.

However, credit cards do come with a few drawbacks. You’ll face higher interest rates and many credit cards come with an annual fee. If you plan on visiting a foreign country, you may have to pay foreign transaction fees. Credit cards are better suited to those who can pay off the balance in full each month and reap the rewards from the complimentary extras.

The safest way to pay for your vacation is to build up your savings. Going into debt for a vacation may be worth it for a honeymoon or a once-in-a-lifetime getaway, but it’s often not advised. To avoid having to borrow a lot of money when you want to go on a vacation, start a savings account with your bank or credit union and put money towards it from each paycheque you receive. You may be surprised how quickly your savings build up over one year.

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7 tips for making your next vacation more affordable

Look for online promotions. Throughout the year, travel agents and online travel sites will have vacation sales. Sign up for email alerts and get notified when a trip you’re interested in goes on sale.

Crowdfund your trip. Set up a campaign on a crowdfunding site during the holiday season, around your birthday or any special event and ask for donations instead of gifts.

Put money into a high-interest savings account. Savings accounts are a quick way to save up with minimal effort. If you deposit the equivalent of $2 a day, you’ll have $730 after a year — plus interest. It might not fully pay for a yearly vacation, but it can help cover costs and act as an emergency fund if you need to make an unexpected trip.

Use an online piggy bank. Online piggy banks are similar to savings accounts, but they’re often less work. You set a goal and the amount you want to contribute to your account then forget about it. By the end of the year, you could use the money to fund at least part of your vacation.

Have a budget. While you’re busy putting away money into your savings, take the time to create a travel budget. Money for accommodation, food, tours and entrance fees should all be added on top of transportation costs like flights and car rentals.

Get a credit card with travel rewards. There are a number of credit cards with travel rewards for you to choose from. Use it to pay for your everyday expenses, pay your bill early to avoid interest charges and build up travel rewards points that you can use toward your trip.

Apply for a study abroad grant. Enrolling in a program overseas is a great way to travel and really get to understand a foreign country. This is a great option for students looking to travel, but unable to build savings or qualify for a loan or credit card.

Should I take out a loan to go on vacation?

Probably not. Most financial advisors are against using a loan of any type — including credit cards — to pay for a vacation. Vacations are a luxury, and going into debt to pay for one may not be a wise decision. You’ll be stuck with monthly payments, and at the end of the day, you’ll pay hundreds or even thousands of dollars more in interest than you would have if you’d saved for your vacation instead.

However, if you must borrow, financing your vacation with a personal loan is likely wiser than using a credit card. Personal loans offer fixed payments, relatively low interest rates and set terms. When you borrow, you’ll know exactly how much that vacation will cost you for years to come.

4 ways to pay for a cruise

As cruises continue to increase in popularity, more people are looking to break the cost down. You have options when it comes to lowering the payments on your cruise to make it an affordable vacation.

Cruise layaway plans. Some cruise companies offer layaway plans that allow you to put down a deposit months in advance and then pay in increments.

Credit cards. Possibly the easiest way to pay for a large purchase, a credit card with a low interest rate can get that cruise booked and you can focus on paying back the money with a low rate.

Book in advance. Cruise companies that don’t offer layaway programs will still allow you to book in advance. This will save you money, and you’ll have more time to pay for your cruise.

Go through a travel agency. Some travel agencies will offer a cruise-now-pay-later program that allows you to finance your vacation before you take it and pay for it once you get home.

Watch out for these mistakes when financing a vacation

Taking out a personal loan comes with risks. Be aware of the following:

Unaffordable monthly payments. If you think you won’t be able to pay back your loan, don’t take one out in the first place. Missed payments can have a negative affect on your credit score, and that can make it much harder to borrow in the future. Plus, the loan cost will be excruciatingly high once you factor in late repayment fees.

Skimming your loan contract. Never skim over the terms and conditions of a loan contract. Your loan contract will tell you exactly what you’ll be spending and what happens if you default — important information when you’re borrowing a large chunk of money.

Overspending on your credit card. Credit card debt comes with a high interest rate and rigid fees. If you borrow too much, you could damage your credit utilization ratio and pay a ton of money in fees and interest.

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Bottom line

Finding the right vacation financing could be an important step in planning your next big trip. There are multiple ways to make a vacation more affordable, while staying on budget. Keep in mind that borrowing too much could make it more difficult to travel in the future. Always compare different lenders and loans and have a healthy amount of money saved to finance the majority of your vacation.

Frequently asked questions

If you have all the required information close by, you can usually complete a loan application in less than ten minutes.

This depends on the lender you choose. Always check this before you apply and sign the loan contract. If you already have a loan and don’t know if you can make early repayments without facing any fees, contact your lender or read your loan contract thoroughly.

Emma Balmforth is an Associate Editor at Finder. She is passionate about cryptocurrency, credit cards and loans, and enjoys helping people understand the often confusing world of finance. Emma has a degree in business and psychology from the University of Waterloo. She wants to help people make financial decisions that will benefit them now and in the future.

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